Nicholas Ryan Publications

This paper studies how the risk of hold-up affects procurement. I use data on the universe of solar power auctions in India. The Indian context allows clean estimates of counterparty risk, because solar plants set up in the same states, by the same firms, are procured in auctions intermediated by either risky states themselves or the trusted central government. I find that the counterparty risk of an average state increases solar prices by 10%. This risk premium sharply reduces investment, because demand for green energy is elastic. Contract intermediation by the central government eliminates the counterparty risk premium.

We study rainmaking as an instrumental religious belief. We present a model in which a religious leader tries to persuade people to believe. Praying for rain can persuade only where the hazard of rainfall during a dry spell is increasing over time, so that prayer is most likely to succeed when people most want rain. We present evidence from prayers for rain in Murcia, Spain, where the hazard rate is increasing, that the church’s prayers for rain predict rainfall over two centuries. To generalize this finding, we gather an original data set of whether ethnic groups around the world traditionally prayed for rain. We find that ethnic groups facing an increasing rainfall hazard are 47% more likely to pray for rain, consistent with our model’s prediction that societies are more likely to pray for rain where prayer is persuasive.

Economic development relies on and transforms the environment. The transformation is evident in the poor environmental quality in many developing countries. For example, air quality in Southeast Asia is three times worse than in the United States, in sub-Saharan Africa four times worse and in South Asia more than six times worse. We model how environmental quality affects health, productivity and well-being and how individuals privately adapt to environmental hazards. We also model how collective action and formal regulation contribute to environmental quality. We draw three main findings from a review of empirical research on these mechanisms. First, individual adaptation to environmental hazards is both inadequate as a remedy and inefficiently low. Second, collective action, without the state, to manage resources or address externalities has been outstripped by the scale of environmental problems. Third, state action through formal regulation works better than it looks. Many formal regulations are coarse, poorly targeted and inefficient, but nonetheless yield benefits in excess of their costs.

This paper studies how the risk of hold‐up affects procurement. I use data on the universe of solar power auctions in India. The Indian context allows clean estimates of counterparty risk, because solar plants set up in the same states, by the same firms, are procured in auctions intermediated by either risky states themselves or the trusted central government. I find that the counterparty risk of an average state increases solar prices by 10%. This risk premium sharply reduces investment, because demand for green energy is elastic. Contract intermediation by the central government eliminates the counterparty risk premium.

Market-based environmental regulations are seldom used in low-income countries, where pollution is highest but state capacity is often low. We collaborated with the Gujarat Pollution Control Board (GPCB) to design and experimentally evaluate the world’s first particulate-matter emissions market, which covered industrial plants in a large Indian city. There are three main findings. First, the market functioned well. Treatment plants, randomly assigned to the emissions market, traded permits to become significant net sellers or buyers. After trading, treatment plants held enough permits to cover their emissions 99% of the time, compared with just 66% compliance with standards under the command-and-control status quo. Second, treatment plants reduced pollution emissions, relative to control plants, by 20%–30%. Third, the market reduced abatement costs by an estimated 11%, holding constant emissions. This cost-savings estimate is based on plant-specific marginal cost curves that we estimate from the universe of bids to buy and sell permits in the market. The combination of pollution reductions and low costs imply that the emissions market has mortality benefits that exceed its costs by at least 25 times.

We study carbon offsets sold by firms in China under the Clean Development Mechanism (CDM). We find that offset-selling firms, meant to cut carbon emissions, instead increase them by 49% after starting an offset project. In a model of firm investment decisions and offset review, we estimate that CDM firms increase emissions due to both the selection of higher-growth firms into projects (35 pp) and because offset projects themselves boost firm growth and therefore emissions (14 pp). The CDM reduces global surplus by causing damages from increased emissions four times greater than private gains from trade in the offset market.

Common resources may be managed with inefficient policies for the sake of equity. We study how rationing the commons shapes the efficiency and equity of resource use in the context of agricultural groundwater use in Rajasthan, India. We find that rationing binds on input use, such that farmers, despite trivial prices for water extraction, use roughly the socially optimal amount of water on average. The rationing regime is still grossly inefficient, because it misallocates water across farmers, lowering productivity. Pigouvian reform would increase agricultural surplus by 12% of household income yet fall well short of a Pareto improvement over rationing.

The integration of markets may improve efficiency by lowering costs or reducing local market power. India, seeking to reduce electricity shortages, set up a new power market, in which transmission constraints sharply limit trade between regions. During congested hours, measures of market competitiveness fall and firms raise bid prices. I use confidential bidding data to estimate the costs of power supply and simulate market outcomes with more transmission capacity. Counterfactual simulations show that transmission expansion increases market surplus by 22 percent, enough to justify the investment. One-third of this gain is due to sellers' response to a more integrated grid.

This paper seeks to explain why billions of people in developing countries either have no access to electricity or lack a reliable supply. We present evidence that these shortfalls are a consequence of electricity being treated as a right and that this sets off a vicious four-step circle. In step 1, because a social norm has developed that all deserve power independent of payment, subsidies, theft, and nonpayment are widely tolerated. In step 2, electricity distribution companies lose money with each unit of electricity sold and in total lose large sums of money. In step 3, government-owned distribution companies ration supply to limit losses by restricting access and hours of supply. In step 4, power supply is no longer governed by market forces and the link between payment and supply is severed, thus reducing customers' incentives to pay. The equilibrium outcome is uneven and sporadic access that undermines growth.

Weak contract enforcement may reduce the efficiency of production in developing countries. I study how contract enforcement affects efficiency in procurement auctions for the largest power projects in India. I gather data on bidding and ex post contract renegotiation and find that the renegotiation of contracts in response to cost shocks is widespread, despite that bidders are allowed to index their bids to future costs like the price of coal. To study heterogeneity in bidding strategies, I construct a new measure of firm connectedness, based on whether a firm has been awarded coal concessions by the Government. Connected firms choose to index less of the value of their bids to coal prices and, through this strategy, expose themselves to cost shocks to induce renegotiation. I use a structural model of bidding in a scoring auction to characterize equilibrium bidding when bidders are heterogeneous both in cost and in the payments they expect after renegotiation. The model estimates show that bidders offer power below cost due to the expected value of later renegotiation. The model is used to simulate bidding and efficiency with strict contract enforcement. Contract enforcement is found to be pro‐competitive. With no renegotiation, equilibrium bids would rise to cover cost, but markups relative to total contract value fall sharply. Production costs decline, due to projects being allocated to lower‐cost bidders over those who expect larger payments in renegotiation.